Debt/Income Ratio
Lenders use a ratio called "debt to income" to decide the most you can pay monthly after your other monthly debts are paid.
Understanding your qualifying ratio
For the most part, conventional mortgages need a qualifying ratio of 28/36. FHA loans are less restrictive, requiring a 29/41 ratio.
The first number in a qualifying ratio is the maximum percentage of gross monthly income that can be applied to housing costs (including loan principal and interest, private mortgage insurance, homeowner's insurance, property tax, and HOA dues).
The second number is the maximum percentage of your gross monthly income that should be spent on housing costs and recurring debt together. For purposes of this ratio, debt includes payments on credit cards, auto loans, child support, and the like.
Some example data:
With a 28/36 ratio
- Gross monthly income of $4,500 x .28 = $1,260 can be applied to housing
- Gross monthly income of $4,500 x .36 = $1,620 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $4,500 x .29 = $1,305 can be applied to housing
- Gross monthly income of $4,500 x .41 = $1,845 can be applied to recurring debt plus housing expenses
If you'd like to calculate pre-qualification numbers with your own financial data, feel free to use our very useful Mortgage Loan Qualifying Calculator.
Just Guidelines
Don't forget these are only guidelines. We will be happy to pre-qualify you to determine how large a mortgage loan you can afford.
At Selectplus Lending, we answer questions about qualifying all the time. Give us a call at (818)645-7035.